Bruce Beaty, ChFC, RICP – VP Business Consultant
Wow! This segment of the industry has changed. My grandmother sold nursing home insurance for a brief time. When it came time to use it, it was a very good policy and it required her to be in a nursing home. The problem was the she wanted to be at home. She was in her mid-80s and prone to falls. Grandfather, 13 years her senior, couldn’t care for her so off she’d go after a fall, then back home she’d come…and another fall, and back in again. So what is the point?
People want to be at home, around their familiar belongings, nearby their families. Let’s be honest, once someone goes into a care facility the kids don’t come around as much, and the grandkids, (you know that nursing home smell) yeah not so much either. Besides, it’s expensive! Institutional care can devastate a family’s finances, not to mention the impact these care costs can have on the insurance carriers. Look at all the companies who left this space and/or sold their blocks of business. I swear there is an island of misfit LTC actuaries out there who were ostracized for mispricing LTC and guessing completely wrong on lapse assumptions.
Enter a new world of living benefits. We talked a lot last month about Legacy Planning. I think living benefits are a big part of this conversation. Living benefits allow folks to leverage their assets whether they live too long, die too soon, or their bodies quit before they do. Who knows which risk to insure for? Think about it. If we are creating income floors to provide lifetime income that cannot be outlived with income riders on annuities, why not throw in a doubler that could pay for in-home care for a bit (usually up to 5 years) thereby taking longevity and morbidity risks off the table. Besides, if I need care I’d rather the caretaker come to my house than to get stuck in a nursing home, at least for as long as it is reasonable. Besides, think how much less it costs for a home health-aid than paying out $10-$12k per month for institutional care. Bonus: Since many clients are looking at Roth conversions, why not throw in an income rider with an LTC doubler so the benefits are all tax-free and you get a tax deduction if you spend more than 7.5% of AGI on health costs. So there you go! (unless the tax code changes again). By the way, the same conversation applies to living benefits in life policies. Actually, there is a policy with a lifetime income benefit, critical, chronic, terminal illness, and a critical injury benefit…talk about your Swiss army knife of coverage!
Don’t get me wrong, I think we all should have bought a 10-pay policy back in the 90s when everyone was healthy and the premiums were affordable, but hey, not everyone did. Traditional LTC is not dead, but in my experience by the time most humans choose to acknowledge their own morbidity, they are either too old, too sick, or the premiums are just too high.
I know many advisors who are “anti-income rider” and just want to sell the best accumulation product keeping the withdrawals at a reasonable level…everything will be great. Personally, being a risk-averse and overly protective person, I like transferring the risk away. Think about all the risks that annuities (and life) and other planning products remove from our clients’ lives between now and the day their estate is settled.
- Longevity risk (withdrawal rate risk)
- Inflation risk
- Morbidity risk
- Mortality risk
- Market risk (consumer behavior risk)
- Sequence of return risk
- Interest rate risk
All of this is integrated into the care continuum. Having a strategy around declining health, its’ commensurate costs and challenges, with a focus on quality of life as we age can all be accomplished with proper planning, be it traditional LTC or innovative products with enhanced living benefits. The right answer is out there for all your clients. It’s just a matter of having the conversation.